Colombia’s oil and mining boom has come to an end, while the nation’s borrowing costs remain at a level that boosts growth, central bank co-director Adolfo Meisel said.
“The mining and energy boom has passed,” Meisel said yesterday in a speech in Barranquilla, on Colombia’s Caribbean coast. “The economy’s dynamism in the future will depend on internal demand, and strategic investments in public works.”
Pipeline damage caused by Marxist rebel attacks, community protests and environmental permit bottlenecks led the government to forecast the first decline in oil output since 2005 this year. President Juan Manuel Santos has repeatedly referred to oil and mining as a “locomotive” of economic growth, as record levels of foreign investment flowed into the sectors under his government.
The economy will probably expand by about 5 percent this year, from 4.7 percent last year, according to Meisel. The central bank has increased its policy rate a quarter percentage point at each of its last four monthly meetings, to 4.25 percent, as growth and inflation expectations picked up.
Even after the increases, Colombian borrowing costs are still at an “expansionary” level that stimulates growth, Meisel said. The current inflation-adjusted interest rate of about 1.25 percent is lower than the “neutral” rate at which monetary policy neither stimulates nor slows the economy, he said.
“I see there’s still a margin to raise the interest rate,” Meisel said. “That doesn’t mean we will, because it also depends on the economy’s growth rate.”
Central bank models show consumer prices rising about 3.05 percent this year, Meisel said. Annual inflation accelerated to 2.89 percent in July, the lowest among major Latin American economies, from 2.79 percent a month earlier. Colombia targets inflation of 3 percent, plus or minus one percentage point.
Colombia will produce an average of 981,000 barrels of oil per day this year, according to Finance Ministry forecasts, down from 1.006 million daily in 2013. Oil accounted for more than half of exports last year.
The price of coal, the nation’s second-biggest export, fell to its lowest level since 2009 last month, as warm weather caused a drop in power demand in Western Europe.